Question: In the chapter, we focused on the effects of a tax on a good. Now consider a subsidy. In particular, suppose the government pays $2

In the chapter, we focused on the effects of a tax on a good. Now consider a subsidy. In particular, suppose the government pays $2 to the buyers of a good for each unit of the good they purchase. The diagram below shows the demand and supply for this good.

a. Fill in the table to explain how the subsidy affects consumer surplus, producer surplus, tax revenue, and total surplus.

b. Does this subsidy lead to a deadweight loss?

Price P2 P2-$2 D+$2 Q1 Q2 Quantity No Subsidy S2 Subsidy Change Consumer Surplus Producer Surplus lax revenue Total Surplus

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